The hospitality and attractions sectors are enjoying a special 5% VAT rate which applies from 15 July 2020 to 12 January 2021.
The purpose of the rate reduction from 20% is to help businesses to recover from the lack of trade during lockdown and does not have to be passed on to customers.
Businesses must account for the correct rate of VAT on sales made in that six-month period and not all sales qualify for 5% VAT. For example alcoholic drinks remain chargeable to VAT at 20%. Hot takeaway food qualifies for 5% VAT but cold food such as sandwiches does not. All food and non-alcoholic drinks provided for consumption on the premises qualify for 5% VAT.
Hotel and holiday accommodation is subject to 5% VAT if the invoice is issued between 15 July and 12 January 2021 or the service is actually delivered in that period. Advance bookings for 2021 can be subject to 5% VAT if the invoice is issued before 13 January 2021.
Problems can arise with tourist attractions, cultural events and other facilities where the admission charge will be subject to 5% VAT but 20% VAT must be applied to other charges such as hiring of equipment. Some attractions charge one indivisible fee for admission together with another item such as a printed guide, in which case the whole price qualifies for the 5% VAT rate.
Sporting events are excluded from the reduced rate but live performances of cultural events may be exempt from VAT.
If you use the VAT flat rate scheme for small businesses check the new flat rate in place for the low VAT period. This will apply if your business falls into any of these sectors:
· catering services, including restaurants and takeaways;
· hotel or accommodation; or
Contact us if you’d like to discuss anything further.